UPDATE 2-Canada trade deficit narrows more than expected in Sept

OTTAWA Nov 4 (Reuters) - Canada's trade deficit narrowed
more than expected in September, helped by a modest pickup in
exports and reinforcing economists' views that the country
pulled out of recession in the third quarter.

The trade gap declined to a deficit of C$1.73 billion ($1.32
billion), data from Statistics Canada showed on Wednesday. That
topped analysts' expectations for a deficit of C$1.90 billion.

Exports rose 0.7 percent with volumes increasing by the same
amount as prices were unchanged. Consumer goods led the way up,
while a rebound in prices saw exports of energy products
increase.

Momentum in the export sector is key to the Bank of Canada's
outlook for the economy. After cutting interest rates twice this
year to offset the impact of cheaper oil prices, the bank is
widely expected to hold rates at 0.50 percent when it next meets
in December.

The drop in oil price over the past year has weighed on the
economy, with growth stalling in the first half of the year. But
economists and policymakers expect growth resumed in the later
half, with trade set to contribute to third-quarter growth.

The report did not alter the view that the Bank of Canada is
likely to be on hold for some time. It is not expected to move
again on rates until 2017, when analysts foresee a hike.

"It looks like trade is going to add very strongly to
third-quarter growth," said Benjamin Reitzes, senior economist
at BMO Capital Markets.

While Reitzes expects the Bank of Canada will be satisfied
by the growth in non-energy export volumes, "they'll be watching
to make sure that progress continues."
Continued...